Posted on Fri, Feb 12, 2010 @ 05:34 AM
Industry: Experiential Education & Travel
Function: Executive and Finance
Location: HQ Domestic, Operations Global
The founder-entrepreneur was a researcher-author who had built a multi-million dollar experiential education and travel business steadily over a period of three decades. He was sixty years old and evaluating options for the continuity of the business as he stepped aside, eventually "retiring" to a reduced role in the business while accessing the value of the business he'd built through a sale. The business had seen customer and revenue numbers mushroom successfully over the last few years.
Among the issues we evaluated and addressed were:
- The impact of the owner's presence and involvement upon company sales and market presence.
- The ability to keep key staff (both customer-facing and administrative) who had been trained and developed internally, possessing decades of accumulated experience.
As is the case for many small to mid-sized private businesses, the founder's continued involvement post-sale was critical to maintaining the value of the brand and the enterprise business value. In addition, the founder had been the primary developer of intellectual property (IP); the business needed to maintain its exclusive rights to this IP and access new IP during a planned and phased succession period.
In order for the deal to work, the company needed to buy out/ roll up a long-time business partner and related support business to create a whole company from the loose collection of separately owned small businesses and independent contractors. Each part was needed for this business to function as a unified enterprise-and to capture maximum economic value.
To support this work, we:
- Created a composite business pro-forma and forecast to explain in financial terms the consolidated business as a whole enterprise - for owner/ entrepreneur, valuation firm, and other key stakeholders.
- Evaluated the valuation and the applicability and benefits of an Employee Stock Ownership Plan- Trust (ESOP) sale; and
- Worked with the owner to optimize the valuation of the business and provide proper financial back-up.
- Screened, interviewed, hired and managed the various professionals to execute both the ESOP sale and the pre-ESOP buy-outs and consolidations on behalf of the owner.
The ESOP was successfully executed, with all issues addressed. This transaction succeeded despite the credit and market meltdowns of 2008 and recession of 2008-10. As a result of this project, the owner was able to convert remuneration expected to be received as personal income into long-term capital gains for significant tax savings.
The ESOP structure allowed three key issues to be addressed:
- The founder was able to sell 100% of the business, while remaining for an extended transition in a role he had chosen and designed in advance.
- By selling to the employees, the founder was able to lock-in key people essential for the ongoing success of the business, rewarding those choosing to stay long-term and contribute to business success.
- The tax-benefitted ownership status created by the ESOP allowed a significant portion of the purchase loan repayment to be made from funds that would have previously been paid by the business as tax on earnings.
Based on this work, the owner realized significant financial benefits, maintained a large degree of post-sale control-influence, created a more viable business going forward, and implemented a stable structure for business succession and continuity.
Posted on Tue, Oct 20, 2009 @ 04:23 PM
Industry: Hospitality (Accommodations & Food Services)
Function: Executive
Location: Domestic
The client had built a boutique high-end hospitality business which included a top Zagat-rated restaurant, unique luxury lodging and a complete destination wedding business. A private school on a large adjacent property closed and the property including a unique but dilapidated country manor house and gymnasium- class room building was to be put on the market.
The entrepreneurial owner both saw opportunity in the unique country manor house and the potential risk associated with the development of this adjacent property which might be contrary to his property's ambience. To mitigate this risk, he opportunistically and defensively purchased the adjacent property and began to develop it, but was struggling with the debt load.
The acquisition and renovation of the country manor added considerable guest room capacity - as well as substantial debt. Both the regional tourist season and the wedding business combined to accentuate seasonal cyclicality which capped the business' peak profitability and depressed the off-season cash flow.
Working with the owner and general manager, we explored the owner's vision and risk profile to guide market research and alternative solutions. MMG's business growth management consulting supported extensive market research into new services and amenities that would complement the existing business and its clientele, utilize newly created excess housing capacity and ameliorate the cyclicality of the current business model. Finally, we developed a range of scenarios, at different risk and debt levels, including general business plans and full pro formas.
The down stream implications of the work included:
- Refinancing debt and adding a full service spa as destination amenity
- Creating new products & services, including counter cyclical spa-based packages
- Identifying spa services and pricing profile
- Targeting incremental sales of services for traditional guests, non-guest visitors to the area and local resident population
- Selling the restaurant and non-strategic portion of housing to a strategic partner
Based on this work, the owner created a more profitable business venture and increased asset value - while restructuring debt to levels more in line with the business' cash generation capabilities.